Archive for the ‘Retirement Options’ Category

In the UK today 40 percent of people consistently put away too little money each month to fund the cost of their retirements. Too many people simply spend for today being unaware that tomorrow waits for nobody.

Throughout the working lives for many of us the day on which we will need to draw on our pensions seems consistently far away.

Even for those lucky enough to be enjoying their youth in a carefree way, the fact remains that by failing to invest in the present, the time they enjoy is being waste.

The government has announced in the last twelve months a huge series of changes and shake-ups in the pension market and savers will have more freedom than ever before to decide how they access their pension savings from the beginning of the new tax year.

The question of how much to put away each month into a pension is a complex one and in this blog, we will address what you need to consider before you arrive at a fixed sum.

The first thing to consider is what type of lifestyle you hope to enjoy once you’ve retired and at what age you see yourself retiring.

Many people leave their working lives before reaching the once statutory 65, and age discrimination legislation now prevents mandatory retirement at any age.

It is possible, therefore, to retire earlier or later, but you will need the finances to sustain you.

The rather bleak question of how long you will live in your retirement also needs to be addressed.

New pension rules ending the compulsory purchase of annuities means that when you do retire, a portion of the pension pot could be used to pay off debts such as mortgages.

This will leave savers with less of a recurring monthly income but also lower overheads and more security.

The chances are that if you are reading this, you may already have a pension plan. If you are a UK tax payer, you may also have access to a state pension through paying national insurance.

This means that you might be in a better position than you thought, so a first step should be an audit of what savings and investments you have.

The government’s Pensions Tracing Service, can help you find any obscure pots of money that you are entitled to. Alternatively if you would like some advice or help in devising a pensions strategy for the future or finding a pension fund that suits you, why not speak to a professional adviser.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED

Human beings, in general, are notoriously bad at calculating risk and weighing up reward, it’s almost hard wired into us.

Our survival, millennia ago, was based around our inability to think too much about the future and focus on ‘eating today’.

This, while useful hunting Mastodons, is less helpful when planning our financial futures and we may take key decisions in our lives without much thought to our finances.

This article will help explore some of the times when financial advice might make all the difference to our wealth and future happiness.

First Home

Before the 2008 crash, at the height of Britain’s property prices, the speed at which house purchase decisions were made reached epic proportions.

The availability of mortgages and other cheap credit in an economy based on an unsustainable housing boom resulted in countless first time buyers finding themselves, post crash, in negative equity.

Others found that when the ‘sweetheart deal’ mortgage rate they signed up to ended, their home became exceedingly expensive.

In both instances some financial advice might have prevented a lot of long term heartache.

The long term effect of negative equity or an expensive mortgage deal can be immense, being ‘trapped’ in your property that you can only sell at a loss or saddled with a huge mortgage obligation should be avoided at all costs.

You can often get mortgage advice from independent financial advisor as part of the overall cost of the loan you take out.

Marriage

People cringe at the thought of discussing money and finances along with the romantic side of tying the knot, but it is essential that you are realistic about the economics of marriage too.

Getting married, sharing a home, and potentially having children together means that life insurance, wills and inheritance and the ownership of shared assets all have to be considered.

Accessing financial advice is important at this point, as there are countless life insurance policies, critical illness covers, and other provisions to cover your individual needs to choose from.

Having an expert who can guide you towards the best deals might well save you money in the long run.

Divorce

Sadly, for many married couples, divorce too will be a significant milestone.

It goes without saying that during the complex and emotionally painful process of ending a marriage expert legal advice is necessary, but it is also important for both parties to have financial advice too.

You might experience a considerable decrease in your income as a result of divorce from your partner, or you might be the recipient of money in the divorce settlement.

You might be the partner who is obliged to pay out a large settlement, or the one who has most responsibility for ongoing child maintenance payments.

If you become the sole provider for any children from the marriage, you may need to consider your life insurance and critical illness cover.

You might already have these policies but they may need to be reviewed in order to reflect the value of any maintenance payments you receive.

A financial advisor can also offer guidance on the most effective way of investing any lump sum from the divorce so it continues to grow in value, and can be used to pay for education and university costs for your children, or add to your own retirement fund.

Some divorcing couples also need to disentangle their pensions and here a financial adviser can be invaluable.

Retirement

In savings terms, your retirement starts now.

Making sure we have an income that will sustain us after our working life is over is something that many people put off until their 30s or 40s, but the longer you leave it, the more costly it becomes.

If you are just starting out on the road to planning your retirement and you have no idea about what choices there are or what pension products to buy, getting some advice is a good place to start.

However, you might already have a portfolio of investments and a variety of pension pots that you have built up yourself.

In this case it might be important to find out whether you current pension providers or other investments are performing effectively, compared to the rest of the market.

A financial adviser will be able to give your portfolio an audit and suggest whether or not your money could be put to better use elsewhere.

Knowledge is wealth

The more expertise that is available to us, the better informed we are and the less likely we will be to make costly decisions that are not easily undone.

Financially, we only have so many options, money, and time, to spend investing it, so it is important not to rely on pot luck.

So if you have a significant milestone in your life fast approaching, you might find it useful to talk over your options with an advisor.

General election time often creates both excitement and nervousness and for much the same reason – the prospect of change. With the battle heating up, the economy in general and pension reforms in particular look like becoming key battlegrounds in the approach to May 7th. With that in mind, let’s take a look at what the three main parties have indicated is in store in terms of retirement planning in general and pensions in particular.

The Liberal Democrats

At the moment, the Liberal Democrats’ proposals are still in “pre-manifesto”-stage, i.e. they are still to be made final. Current indications are that they plan to adopt a tax-and-spending economic strategy. Hence pension savers can expect there to be new levies on their pension pots. There will also be a reduction in the amount people can save tax-free in these pension pots. At current time, the Liberal Democrats are talking about capping them at £1M, which would be a reduction of 20% on the current figure.

The Labour Party

The Labour Party has also yet to release its manifesto; however it has shown itself open to reducing tax relief on pension contributions made by higher earners. Specifically it has mentioned targeting those earning over £150K pa and slashing the relief on pension contributions to 20%. Labour believes that this would raise over £1bn, which they say they would then spend on job creation. This is in addition to reintroducing the 50p rate of income tax to incomes of over £150K pa Labour have indicated that they are in favour of a mansion tax, which they say they would use to fund the NHS. As a final retirement-related point, Labour have also proposed abolishing the Winter Fuel Payment for the most affluent pensioners.

The Conservative Party

Again, the Conservatives have yet to release their manifesto. They have, however, stated that they are committed to “dignity and security” in later years. They also have a track record in government, which could give some clues to their outlook. First of all it was the Conservatives who introduced the “Triple Lock” pension policy, i.e. the guarantee that the state pension would rise in line with inflation, wages or 2.5%, whichever is the highest. While Labour and the Liberal Democrats are both in favour of this “in principle”, neither has, as yet, made a commitment to keeping the Triple Lock, whereas the Conservatives have guaranteed to keep it until at least the 2020 election.

Recently the Conservatives have removed the obligation to use a pension fund to buy an annuity, with effect from 6th April 2015. This means that pensioners can choose between the freedom of keeping control of their pension pot versus the security of an annuity. This has been the subject of some controversy; in that the elderly will splurge their earnings (possibly for the best of reasons) and thereby make themselves dependent upon state support in their latter years, particularly if they need long-term care. Given that the logic behind offering tax relief on pension contributions was essentially to ensure that people were able to save enough to have an income in retirement, it is an open question as to how Labour or the Liberal Democrats would respond to this if they were to form a government. They could choose to let sleeping dogs lie, they could choose to bring back the obligation to buy an annuity (albeit possibly at a later age) or they could use this change to justify changes to tax relief on pension contributions.

The Conservatives have announced other changes, which essentially make it easier to transfer pension pots between generations upon the death of the saver. Again, it is unclear whether or not Labour or the Liberal Democrats would continue to support this.

Some readers might be thinking about the coming festive season of office parties and reflect that there are only a few more to go before they retire.

For some, this is the start of a new phase of life, free from the demands of working life and the stresses of a 9-5 routine. If you have already planned adequately for retirement, a future life without work should be rewarding, fulfilling and exciting.

If you are still planning how to retire and how to have a reasonable standard of living, your impending retirement date might give you cause to feel more than a little anxious.

If so, this is your guide to preparing for retirement over the next five to ten years.

Start with a plan

You can’t alter what you don’t measure, so in order to save adequately for retirement, you first need to carry out an audit of your current financial circumstances. How much debt do you have? What savings do you have? How much equity is there in your home? What is the value of your pension provisions currently?

You also need to think about the lifestyle you would ideally like to have (this must be tempered with a degree of reality, of course), and work out as accurately as possible what this will cost.

Check with your partner

If you are married or in a civil partnership or long term relationship, you will need to examine yours and your partner’s pension provision together. If your personal finances need a bit or re-organising or your paperwork is in a large heap somewhere, then this might be a good time to get organised.

You might need to request a new valuation for both your pension provisions and it might also be worth investigating how well the pension is actually performing. You can ask to see the funds the pension provider has invested in and it is crucial to see what fees and charges are being levied against you each year.

It also might be worth reviewing if it would in your interest to consider moving your pension provisions to another provider.

If you have decided to retire early, you will need to find out what penalties that you might incur from taking your benefits before your normal retirement age. You will then need to deduct any outstanding debts or liabilities on retirement and you will have your final retirement income.

Don’t give up

Your calculations or benefits might fall short of your retirement goals. This does not mean that you have to abandon your plans for the future, because you still have several years in which you can make a real difference to your savings.

Once your existing finances are working to their optimum level, you need to save as much as you can afford. It might be an idea to conduct a household expenditure audit to see what can be saved each month and what can be allocated towards your pension provisions.

Would you rather leave your worldly goods to your loved ones (or your favourite charity) or the tax man?

Inheritance tax has long been the subject of heated debate, but the chances of it being repealed any time soon, is very remote. So for most people, the choice of creating a financial plan to deal with it or leave your loved ones to foot the bill is pretty important.

Inheritance Tax Is A Growing Concern

Under current rules transfers of assets between spouses and civil partners are (usually) ignored for the purposes of any tax, including inheritance tax. Each individual can leave an estate of up to £325K to any other individual or organization before Inheritance Tax becomes payable.

Inheritance Tax is levied at a flat rate of 40% (with a reduction of 4% where the deceased has left at least 10% of their assets to charity).

Any unused portion of this allowance can be transferred to the surviving spouse/civil partner as a percentage. For example £162.5K would be transferred as an allowance of 50% extra. This means that the surviving spouse/partner would be able to leave a tax-free estate consisting of their own personal allowance plus an extra 50%.

Looking at these figures and comparing them with house prices, it’s easy to see that many home owners could find their estate subject to inheritance tax.

Inheritance Tax Must Be Paid Before The Estate Is Released

Upon a person’s death, their executor must inform the Inland Revenue of the value of that person’s estate. They will then receive a formal notification of how much tax is due. In general, this must be paid within 6 months of the deceased’s death. If it is not the Inland Revenue will charge interest on the outstanding balance. Although the payment can be made out of the deceased’s estate, it must be made before the bulk of the estate is released.

There is an exception for funeral expenses, although the bank or building society must agree to allow the executor access to the account. If they do not, these can be recouped from the estate and can be deducted from its value for tax purposes. Added together this can all mean that families who have worked hard at money management to put their family finances in good order can find themselves under tremendous financial pressure at a time when they are likely to be feeling highly emotional.

Planning ahead with the help of a financial adviser can help to minimize the stress of dealing with a bereavement.

Life Insurance Can Be A Lifeline

Life insurance can be a very efficient way to ensure that there are funds readily available to cover Inheritance Tax and funeral expenses. Rather than naming an individual as a beneficiary of the policy, the holder can request that the eventual payout be made into a trust, held on behalf of your preferred beneficiaries.

In this way, the funds will be kept separate from your estate and can be released immediately (and relatively simply). This can also help to ensure that a surviving partner and/or children have sufficient funds to live comfortably while probate is being undertaken.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Time for a portfolio health-check. Once a financial plan has been put in place, it is tempting to believe the paperwork can simply be tucked away in a drawer and forgotten. However, like a well-kept garden, a financial plan needs regular tending to ensure it is still on track. ‘Weeds’ can spring up or you may just like to grow something new. What should a financial health-check comprise?

check it is still fit for purpose. The original financial plan will have been matched to an investor’s goals – to retire at 60, say, to fund education for children or whatever. A review will first look at whether these goals have changed, perhaps with the birth of another child, or a change of job or a surprise inheritance. It should consider whether investors need to save more or switch to different types of investments to achieve their goals.

The Portfolio Review

A review will also look at an investor’s progress towards their goals. It may be a portfolio has performed particularly well and it is no longer necessary to take as much risk – or the opposite might be true and an investor needs to take on more risk. A financial health check will also examine whether the underlying investments are performing in line with expectations. Fund managers will have good and bad periods. A run of bad performance may mean their style is out of favour – for example, they may target larger, dividend-paying stocks while the market currently prefers small companies – but your financial adviser will be able to judge whether this is expected or whether it is a sign of a deeper problem. It may be a manager is losing their touch, has left their employer or there are problems within the investment house. In this case, it may be worth switching to another manager.

Investment Changes

A portfolio will also need to be tweaked according to the wider economic environment. The 2008 financial crisis changed the investment landscape – for example, the low interest rates that have followed mean income-seekers have had to work harder to generate the same level of yield. While an event of this magnitude will hopefully not repeat itself in the short term, it highlights the importance of regular reviews and ensuring your financial plan continues to be appropriate. Financial health checks can ensure your garden grows abundantly in all weathers. A little tending can go a long way. To arrange a financial review contact Maxim Wealth Management or call 0141 764 0040.

Pension Transfer Advice

Pension transfer advice, for the pot that you have accrued. Most people switch jobs several times during their working life. When you change employers, it is worth thinking about, combining your pensions into one pot. It is easier to keep an eye on fund performance if your pensions are all under one umbrella. A single pension pot will incur less paperwork and administration, and could also generate lower costs and better overall performance. Sounds like a no-brainer? In theory yes, however, there are some important issues to consider before taking the plunge seek independent Pension Transfer Advice.

Occpational Pension Schemes

Most occupational pension schemes and private schemes can be transferred, but there are restrictions and potential pitfalls. It is not usually worth transferring final-salary or public-sector pension schemes the benefits are too good to lose. You should only transfer if you have actually left a company. If your current employer contributes to your existing occupational pension scheme, you should not switch. Also it is worth noting that the money in your pension can only be transferred from one pension scheme to another (until you have retired), and not every new pension scheme accepts inward transfers.

Small Pension Pots

If your pension pot is very small, it may not be worthwhile switching: you will have to pay charges when you transfer, and some providers impose harsh penalties if you leave their scheme. And, if you are relatively close to retirement, you might not have sufficient time to recover the costs incurred by transferring.

According to the Pensions Advisory Service, the Department of Work & Pensions (DWP) is set to publish a consultation paper examining the consolidation of small pension pots. Possible approaches could see your pension pot moving with you when you change your employer; alternatively, when you change your job, your pension pot could be left behind and – unless you decide to opt out – the cash would automatically be transferred to a central aggregator fund. The DWP believes the changes would increase the visibility of pensions saving: instead of seeing several small figures, each individual would be able to view one larger, consolidated figure.

Transferring and aggregating your pension pots might generate significant long-term benefits; however, any decision to do so should be taken for the right reasons. Tread carefully and, above all, take expert advice before making an irreversible decision. For Pension Transfer Advice contact Maxim Wealth Management who are well-placed to help you with this.

It has long been accepted that improvements in medicine, lifestyle and an understanding of the effects which habits such as smoking can have on our health means life expectancy is increasing. Future generations will enjoy much longer and healthier lives on average than their predecessors.

Figures released in April 2011 by the Department of Work & Pensions help illustrate rather exactly what this means. These figures suggest, of the under 16s already alive today, over a quarter are going to reach the age of 100 – and already, the average new-born female is going to live to over 90.

As Steve Webb, Minister for Pensions, commented at the time, this means that millions of people will spend over a third of their life in retirement. But, as the DWP were quick to point out, this news also coincides with a period during which pension savings are in serious decline.

A population with increasing life expectancy is putting our welfare system under significant pressure as more people need not only pension income but also healthcare, incapacity support and help within the home. When the time comes for you to retire you can expect that your State Pension will provide little more than a safety cushion. If your retirement plans include holidays, visiting relatives and treating yourself on occasion, then its time to take control of your savings and start building up a retirement fund of your own.

When it comes to retirement planning, time is one of the most important assets you have to save for retirement.

It takes a long time to build up the investments needed to provide a comfortable retirement income and the sooner you start retirement planning and saving, the better. Even putting a small amount away on a regular basis, if done long term, can make a difference. Both occupational or company pension schemes and personal pensions are tax-efficient.

Your contributions to company pension schemes are deducted from pay before tax is calculated and for contributions to personal schemes, tax you have paid before you make your contribution is reclaimed for you by your provider. In to each type of plan you can contribute up to £3,600, 100% of your net relevant earnings or £50,000 (for tax year 2011/12), whichever is the greater and you can then use your personal income tax allowances before calculating the tax you pay when that pension finally pays out.

If you work for more than one employer, a financial adviser can help you check your previous company schemes and work out what you are entitled to. Your retirement planning might also include individual savings accounts (ISAs) which are tax-efficient ‘wrappers’ all profits earned on investments held inside them are paid out to you free of further tax. The amount of money you can invest in an ISA is also subject to limits (£10,680, tax year 2011/12), but it is worth getting into the habit early.

If you think you could benefit from retirement planning we’d be happy to offer our services. But don’t delay because the longer you put off planning for your retirement the less retirement income you’ll have. Call us now on 0141 764 0040 and let’s see if you can help. Contact Us.